#Liquidity101 #Liquidity101
What is liquidity?
Liquidity means how easily you can buy or sell an asset without moving its price too much. Therefore :
- High liquidity = easy to trade, small price impact.
- Low liquidity = trades can cause big price changes (slippage).
How does liquidity affect price execution?
On a CEX (centralized exchange): large market orders may eat through the order book → worse price.
On a DEX (decentralized exchange): the price moves along a curve; big trades in small pools = big slippage.
How to check liquidity?
On CEX: look at 24h volume, bid/ask spread, and depth chart.
On DEX: check pool size (TVL), 24h volume, and number of traders using tools like DexTools or GeckoTerminal.
What is slippage and how to reduce it?
Slippage = difference between the expected price and the actual execution price.
Often caused by low liquidity or fast-moving markets.
On CEX: Use limit orders and avoid volatile moments.
On DEX: split large trades, use aggregators (1inch, CowSwap), trade tokens with high TVL and volume, only raise slippage tolerance if needed.
